Markets & Finance

S&P Picks and Pans: JetBlue, Lehman, Honeywell, ADC Telecom

December 13, 2007

Plus more analyst opinions on stocks making headlines Thursday

S&P REITERATES HOLD OPINION ON SHARES OF JETBLUE AIRWAYS

From Standard & Poor's Equity Research

JBLU; $7.13

Shares are surging in afternoon trading after an unconfirmed report on the New York Times website that Lufthansa is in talks with the company to buy a stake of about 25% in JBLU. The Times said an announcement could come this afternoon. We don't see a lot of strategic advantages for a partnership between the two airlines, since JBLU flies primarily domestically. Also, U.S. laws limit foreign ownership in U.S. airlines. We think a major investment in JBLU would provide support to its stock and would provide a capital infusion. We are keeping our 12-month target price of $8. /J.Corridore

S&P REITERATES SELL OPINION ON SHARES OF LEHMAN BROTHERS

LEH; $61.82

Lehman posts November-quarter EPS of $1.54 vs. $1.72, beating our $1.43 estimate. Net revenues are lower than we forecast due to steeper fixed income trading losses than we expected, but equity and asset management businesses performed well. Compensation costs were lower than we projected, helping pretax margins. We are lowering our fiscal 2008 (Nov.) EPS estimate by 30 cents to $6.34 due to concerns about a slowdown in investment banking activities, as well as further fixed income troubles. We are keeping our 12-month target price at $55, 1.4X projected 12-month book value, a discount to peers. /M. Albrecht

S&P REITERATES BUY RECOMMENDATION ON SHARES OF HONEYWELL

HON; $59.37

In an investor conference, Honeywell says that while it expects softening in the global economy in 2008, it sees continued strength in emerging regions, and is targeting 18% EPS growth, with 100% or more of EPS realized as free cash flow. We are raising our 2008 EPS estimate by 16 cents to $3.72, since we expect aerospace, oil & gas, and global infrastructure markets, as well as margin improvement on good execution, will drive results. We are maintaining our 12-month target price of $66, and our 3-year EPS growth rate of 14%, which anticipates slowing earnings growth beyond 2008. /R. Tortoriello

S&P REITERATES BUY OPINION ON SHARES OF ADC TELECOM

ADCT; $18.76

Before special items, ADC posts October-quarter EPS of 30 cents vs. 14 cents, above our 23 cents estimate. Both sales and gross margins were above our forecast, as strong demand for fiber and wireless connectivity solutions outweighs declines in legacy copper and HDSL products. We view ADC as well positioned to benefit from an ongoing industry spending shift toward broadband connectivity. Additionally, we expect sales growth during fiscal 2008 (Oct.) to receive a boost from a spending pickup by large carrier AT&T. Based on relative analysis, we keep our 12-month target price at $22. /A. Bensinger

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF ON SEMICONDUCTOR

ONNN; $7.97

ONNN agrees to acquire Amis Holdings (AMIS) in a stock deal valued at $915 million, about $10.14 a share, subject to conditions and approvals. The transaction is expected to close in the first half of 2008. ONNN has identified up to $50 million in potential pretax cost synergies in 2009 and it expects the deal to be EPS-accretive as its exits 2008, before amortizations and share buybacks. Specific opportunities include rationalization of $10-$20 million in capital spending, interest expense savings and tax benefits. We are keeping our 2007 EPS estimate at 80 cents, 2008's at 84 cents, and our target price at $12. /C. Montevirgen, Z. Bokhari

S&P REITERATES STRONG BUY OPINION ON SHARES OF DANAHER

DHR; $84.65

Danaher says it expects $4.30-$4.40 2008 EPS, below our $4.44 estimate. Before special charges, our fourth-quarter estimate of $1.14 is at the high end the company's range. Although we have assumed that recently acquired Tektronix will have an immaterial impact on profits in 2008, but be accretive to EPS in 2009, we now think there could be modest EPS upside potential. Based on international expansion and our view that most Danaher operations have relatively modest U.S. economic sensitivities, we see strong EPS and cash flow growth despite slower U.S. economic growth. /E. Levy, CFA